The rate of consolidation among hospitals and health-care providers quickened last year as the four major academic health centers sought to integrate and expand their programs to include a range of health services in an effort to provide cradle-to-grave health care.

The still-emerging systems are using different strategies that will eventually define how and where the region's residents receive their health care. In all cases, however, the systems are expanding geographically to cover a large number of communities, while their services expand horizontally to include primary care physician practices, home health care, ambulatory surgical centers, community health centers, assisted living communities and even fitness centers.

Some analysts, though, warn that the economic goals of these emerging systems has yet to be realized.

"Thus far, consolidation has been largely in name only," said Jerry A. Anderson, health care analyst for Janney Montgomery Scott Inc. "A number of hospitals have either been acquired or merged. However, very little capacity has been taken out of the system. In the future, an actual reduction in capacity is needed. This will mean a reduction in beds and, inevitably, the actual closing of a number of hospitals."

The consolidation is being driven primarily by three factors: cost pressures, excess capacity and access to managed-care contracting.

Health-care providers are being squeezed to reduce costs by managed care organizations, health insurers and state and federal governments which are ratcheting down the rates they pay and the number of services they will reimburse. As a result, health systems are reorganizing and merging in order to reduce costs by rationalizing services, eliminating costly duplication of services and gaining economies of scale.

As health-care services are pushed out of the hospital setting as a result of medical advances and cost-pressures, there is an abundance of acute-care hospital beds in the Philadelphia region. Some estimates indicate that nearly half the region's hospital beds will need to be either closed or converted to another use in the coming years in order for the supply to meet demand. By establishing integrated networks, health-care providers say they can "rationalize" the system through the appropriate conversion or closing of these beds.

At the same time, each system is developing into an integrated delivery network capable of providing a full "continuum of care" for its communities. By developing a cost-effective integrated delivery network, the health systems can participate in risk contracting with managed care organizations. Under such contracts, the health system accepts a negotiated percentage of the premiums paid to health plans in exchange for providing a full range of care to those plans' members who use the system's services, facilities and physicians.

Although still in their infancy, risk contracts are expected to eventually represent a large percentage of each system's revenue, analysts and hospital officials say.

? University of Pennsylvania Health System agreed to align with Pennsylvania Hospital and Phoenixville Hospital, and is seeking similar agreements with Chestnut Hill Healthcare and Holy Redeemer Hospital and Medical Center.

? Jefferson Health System formally combined with Main Line Health System, while Thomas Jefferson University Hospital merged with Methodist Hospital. Jefferson and Methodist, meanwhile, are pursuing a joint operating agreement with St. Agnes Medical Center.

? Camden-based West Jersey Health System agreed to partner with Memorial Health Alliance, creating South Jersey's largest health network.

Among the major institutions that remain unaligned are Delaware County's Crozer-Keystone Health and North Philadelphia's Albert Einstein Healthcare Network.

Amid these changes, the Pennsylvania Economy League released a study in March predicting that as many as 20,000 health-care jobs will be permanently lost in the region by 2001. As many as 20,000 additional workers will transfer to other positions within the industry during that time, the study said.

Among the report's recommendations were:

? A public/private initiative to retrain industry employees who will be affected by the sweeping changes;

? endorsing state and federal legislation and streamlined regulations that would speed the reconfiguration of the health delivery system, such as easing the conversion of acute-care facilities into other uses.

The final recommendation received unexpected attention late in 1996 when state legislators "accidentally" deregulated a portion of the health care industry when the Legislature failed to renew regulations designed to limit the number of services offered in particular regions.

The regulations mandated that providers obtain a "certificate of need" before expanding or adding a host of programs that the state regulates, such as nursing home beds and open-heart surgery programs.

Gov. Tom Ridge entered the fray, directing agencies to promulgate statements of policy that warned providers not to rush to expand services. Nonetheless, Abington Memorial Hospital opened an open-heart program within hours of the deregulation of the certificate of need process. Ironically, the reason for the deregulation stemmed from legislative amendments that would have exempted Abington's proposed program from the certificate of need process. When several legislators balked at the exemptions, the vote was shelved, effectively killing the program for the time being.

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